Broadband CFO Pleads Guilty to Cooking the Books

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A former chief financial officer and vice president of finance for Enron Broadband Services (EBS) has pleaded guilty to falsifying books and records for the defunct telecommunications division of the failed energy company.

Kevin Howard, age 46, of Houston, entered a guilty plea Monday to one count of falsifying books and records in U.S. District Court for the Southern District of Texas, the U.S. Department of Justice said. Howard faces a maximum sentence of up to 12 months in home confinement.

Howard knowingly and willfully caused Enron's Form 10K for the year-ending 2000, filed with the U.S. Securities and Exchange Commission, to be falsified, according the indictment and plea agreement. The 10K report did not "accurately and fairly reflect, in reasonable detail," EBS' transactions and assets, the DOJ said in a news release.

In January 2000, Enron officially unveiled EBS to the public as Enron's newest "core" business group and announced that EBS would report a loss of US$60 million for the year 2000. By the fourth quarter of 2000, EBS had failed to generate any significant revenue, the DOJ said.

Howard told the court that he and others at EBS and Enron knew that, absent a large revenue-generating transaction, EBS would miss the announced target by a wide margin. While EBS had little revenue, it had entered into an agreement with Blockbuster to provide video-on-demand services, and this agreement had anticipated future revenue in the hundreds of millions of dollars.

Howard said that he and others at EBS structured a transaction known as "Project Braveheart," designed to book a portion of the anticipated future earnings from EBS' agreement with Blockbuster in the fourth quarter of 2000.

Howard and others at EBS approached a small video-on-demand company in November 2000, asking the company to be EBS' joint venture partner so that EBS could meet its earnings target. Under the agreement, a third party would buy the small company the next quarter, the DOJ said.

Howard said he learned that Enron's auditors, Arthur Andersen, would probably not have agreed with EBS' recognition of earnings from Project Braveheart if it had known that the small video-on-demand technology company intended to exit the joint venture in the first quarter of 2001. Howard told the court he knowingly failed to inform Andersen of the plan, the DOJ said.

Howard also said that he failed to inform the video-on-demand company that he had learned that the company could not be bought out in the first quarter as originally discussed.

EBS subsequently sold a portion of its interest in the joint venture and booked $53 million in earnings from this transaction in the fourth quarter of 2000. Project Braveheart enabled EBS to falsely record these earnings as revenue in order to meet the $60 million loss goal, the DOJ said.

In November 2005, Howard was charged with conspiracy to commit wire fraud and falsify books and records; wire fraud, including honest services wire fraud; and falsifying books and records. In May 2006, Howard was found guilty of the charges against him, but the conviction was vacated prior to sentencing due to a Fifth Circuit Court of Appeals' decision.

The DOJ then removed the honest services wire fraud charges from the indictment and the case was set for re-trial, with trial scheduled to begin Monday.

Charges against a number of EBS employees, including Howard, were first brought in March 2003 by the Enron Task Force, a team of federal prosecutors and agents formed to investigate matters related to the collapse of Enron.

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